Washington, DC -
04/16/2008 - One in 33 homeowners is projected to be in foreclosure primarily over the next two years, as a result of subprime loans made in 2005 and 2006, according to a new report released today by The Pew Charitable Trusts. In some states, the outlook is especially grim; for instance, nearly one in 11 homeowners in Nevada is projected to be in foreclosure and one in 18 Arizona homeowners may face the same circumstance over the next two years. National Fact Sheet Pew is no longer active in this line of work, but for more information visit the Subprime Mortgages Project on PewHealth.org.
Homeowners being foreclosed upon may not be the only homeowners affected, according to data cited in the report. An additional 40 million neighboring homeowners may see their property values and their municipalities’ tax bases drop by as much as $356 billion, largely over the next two years.
Defaulting on the Dream: States Respond to America’s Foreclosure Crisis is the first-ever, comprehensive look at what all 50 states and the District of Columbia are doing to try to address the subprime mortgage fallout. The report finds that more often than not, states are at the forefront of developing policies and programs aimed at preventing more irresponsible loans from being made and improving residents’ ability to stay in their homes. The report highlights states that are making headway to strengthen loan underwriting standards and help borrowers avoid foreclosure—and underscores that any federal legislation must complement the work being done in the states, not compromise it.
The report is a joint effort between the Pew Center on the States and Pew’s Health and Human Services Program.
“Stronger standards from federal policy makers could have helped avert this crisis,” said Shelley A. Hearne, Managing Director of Pew’s Health and Human Services Program. “Future legislation must consider ways to strengthen standards to prevent more troubling loans from being made. Let's make certain federal laws build upon, rather than preempt, the strong and smart state efforts already underway and ensure that states retain flexibility to respond to local circumstances.”
States are using a wide range of measures to try to prevent problematic loans from being made in the first place. In North Carolina, lawmakers have passed some of the nation’s most aggressive consumer protection laws that help assure that borrowers receive loans that meet their circumstances through strong underwriting standards, such as requiring lenders to assess a borrower’s ability to repay, not just at a loan’s teaser rate, but also when that introductory rate adjusts. Colorado, Maine, Massachusetts, Minnesota and Ohio have followed North Carolina’s lead. Ten states, including Maine, Minnesota and North Carolina, ban most prepayment penalties, which are included in about 70 percent of all subprime loans. At least a dozen states have anti-predatory lending laws that regulate high-cost loans. And nine states, including Arkansas and South Carolina, require mortgage brokers to consider or represent the interests of the borrower when recommending mortgages.
Some states, including several that have been hit hardest by the crisis, also are taking steps to try to help current homeowners avoid foreclosure. Ohio, Michigan and Pennsylvania are among at least nine states with publicly funded refinance programs. Ohio, which accounts for 6 percent of the nation’s estimated foreclosures—loans in the foreclosure process or 90 days past due—launched a statewide campaign, including a 24-hour hotline, which encourages at-risk borrowers to seek counseling. Earlier this month, the state reached agreement with nine mortgage servicers on a significant effort to modify the terms of adjustable-rate, subprime mortgages.
Although they have not been as severely affected to date, states such as Maryland and Massachusetts are taking similar steps. Maryland recently passed sweeping reforms that extend the foreclosure process from 15 to 150 days and seek to prevent deceptive foreclosure rescue scams. Massachusetts soon will provide borrowers in default on their mortgage payments 90 days to work with their servicers to try to avoid foreclosure. It also recently made $2 million in grants available for foreclosure education, prevention and counseling initiatives.
Finally, 14 states have created statewide foreclosure task forces to bring government, lenders, consumer advocates and experts together to address the crisis.
“State lawmakers who have shown they understand the high stakes involved in the nation’s foreclosure crisis—including the impact on state and local economies—deserve a lot of credit,” said Susan K. Urahn, Managing Director of the Pew Center on the States. “We hope some of the promising practices highlighted in this report can inform federal efforts and inspire others to take action.”
Some states with severe problems have lagged behind. California, where one in 20 homeowners is projected to experience foreclosure, primarily over the next two years, issued a notice to loan servicers encouraging them to agree to wholesale loan adjustments, but as of the end of 2007, had provided little additional help to financially distressed homeowners. California has a task force and is exploring other relief, however, and has proposed expanding the types of loans regulated and strengthening the state’s underwriting standards for high-cost mortgages to prevent future challenges. Arizona, Florida and Utah, three of six states with the highest projected foreclosures per homeowner in the country, have also not been quick to respond to their states’ growing crises.
Pew’s research analyzes two principal data sets: the Mortgage Bankers Association (MBA) 4th Quarter National Delinquency Survey and the Center for Responsible Lending’s (CRL) foreclosure projections and Subprime Spillover data. (CRL is a partner in Pew’s Family Financial Security portfolio, which seeks to advance common-sense solutions to help Americans save for tomorrow and manage debt today.) Both data sets are widely cited and used to understand the nature and magnitude of the nation’s foreclosure challenges. Researchers also conducted extensive interviews and used other data sources to identify state action to address the mounting foreclosure challenges facing the country.
Below you can download a copy of the complete report. You will also find links to a national fact sheet and 50 state-specific fact sheets (including District of Columbia) assessing how each state is being affected by and responding to the foreclosure crisis.
State Fact Sheets: